Revision Note On Manufacturing Accounts

SALIENT POINTS on the topic of Manufacturing Accounts:

1.0 Manufacturing accounts are prepared for internal management purpose only. This report helps management to distinguish between the costs and profitability associated with the manufacturing operations and those associated with trading ( shown in the trading account)


2.0 In a manufacturing account, we have:

• PRIME COST= Cost of raw materials + direct labor employed in production

• FACTORY COST OF GOODS PRODUCED= Prime Cost+Indirect facoty expenses plus or minus any movement over the period in the cost of work in progress

• FACTORY PROFIT=a notional profit earned in the manufacturing operation, reflecting the relative cheapness of manufacturing goods compared with buying them from outsiders

• TRANSFER PRICE OF FINISHED GOODS PRODUCED=Factory Cost+ Factory Profit. This transfer price appears in the trading account as part of the cost of goods sold.